Globalization, a process begun in wake of World War II with the signing of the Global Agreement on Tariffs and Trade in 1947, may now be in its last days. Whether those days number in the thousands or hundreds is yet to be seen but, make no mistake, the end of global economic cooperation is near. As reported in the above-linked article about the G2o meeting in Paris, export-dependent nations, lead by China, are dragging their feet on the 2-step effort to measure and rectify global economic imbalances.
Finance chiefs of the world’s dominant economies on Saturday pressured China to drop its resistance to a deal on tracking dangerous imbalances in the global economy, in an effort to revive the Group of 20 rich and developing nations as the forum to prevent further financial crises.
More than any other imbalance, current accounts (trade supluses and deficits), have taken center stage in the talks.
China has so far opposed targeting current account surpluses — which show that a country sends much more goods and capital abroad than it receives …
But patience is wearing thin. Global leaders understand that such imbalances were at the root of the economic collapse of the past couple of years and that the capacity to deal with another such crisis has been exhausted.
The stakes are high: French Finance Minister Christine Lagarde warned Friday that a failure to address imbalances “leads us straight into the wall of another debt crisis,” while President Nicolas Sarkozy said that countries must not get complacent as some parts of the world are starting to recover from the crisis while others are still lagging behind.
“That would be the death of the G-20,” Sarkozy warned.
The following is perhaps the most frank admission I’ve seen yet of the role that global trade imbalances played in the global economic melt-down:
What is clear to most economists is that sticking to the status quo could be fatal.
In the years before the financial meltdown of 2008, countries with trade surpluses plowed money into mortgage and other investments in the United States, helping escalate their value, U.S. Federal Reserve Chairman Ben Bernanke told his G-20 colleagues Friday. But the U.S. failed to safely absorb money flooding in from emerging nations like China, Middle Eastern oil countries and industrialized countries in Europe, Bernanke said.
“… the death of the G20.” “Sticking to the status quo could be fatal.” Strong words that highlight the urgency. Bernanke and others know very well that a repeat of the recent economic crisis will be exactly that – fatal. The global economic system will come completely unglued and it will be every man (country) for himself.
How much time is left? That’s the big, unanswered question. But if recent history is any indication, it’s not long. Consider this: the economic bubbles we’ve witnessed in the last two decades have been fueled by the trade imbalances. American trade deficit dollars have to come back to America, one way or another. In the ’90s, those dollars bought stocks and inflated a huge stock market bubble. It took about six years for that to run its course and for the bubble to burst in March of 2000. Then those trade deficit dollars were funneled into real estate in the form of mortgage-backed securities. Once again, it took about six years before that nearly collapsed the entire global financial system.
It’s now been about three years since that collapse in late 2007/early 2008, and nothing has been done to address trade imbalances. First, trade dollars inflated a bubble in treasuries – a bubble whose bursting has been delayed by the Fed’s program to buy up new treasury issues. More recently, those trade dollars are re-inflating another stock market bubble. History suggests that there may only be another three years to go before the next economic collapse. If the G20 can’t address these imbalances in a coordinated way, then the U.S. will have to go it alone and do what’s necessary to restore a balance of trade. It’s that or economic oblivion.
Export-dependent nations, most notably China, will never go along with any G20 plan to rectify imbalances, wiping out their huge trade surplus. They may play along a bit longer to buy time, but it won’t buy them much. When time runs out, so too will the global economic engineering that has forestalled the day of reckoning for overpopulated, export-dependent nations. From my perspective, that day can’t come soon enough.